How to Buy and Sell Stocks: The Basic Steps
You need a brokerage account to buy and sell stocks
To buy a stock, you open an account with a brokerage — a company that holds your money and executes trades on your behalf. You fund the account with cash, place an order for the stock you want, and the brokerage buys it for you. To sell, you place a sell order through the same account, and the brokerage sells your shares and deposits the proceeds back into your account.
The brokerage charges you a fee for this service, though most major brokerages now charge zero commission per trade. You may still pay other fees — for account maintenance, for certain types of orders, or for research tools — depending on which brokerage you choose and what account type you open.
Key Takeaways
- You open a brokerage account, fund it with cash, and place a buy order for the stock you want; the brokerage executes the trade and holds the shares in your account.
- Most brokerages charge no commission per trade, but may charge other fees for account features, research, or certain order types.
- A market order buys or sells immediately at the current price; a limit order waits until the price reaches a specific level you set.
- You can hold stocks in a regular taxable account or in a tax-advantaged account like an IRA, and the account type affects how you pay taxes on gains.
- Selling a stock triggers a capital gains tax on any profit, and the rate depends on how long you held it and your income level.
Choosing a brokerage and opening an account
Most brokerages let you open an account online in 10 to 15 minutes. You provide your name, address, Social Security number, and employment information. The brokerage verifies your identity and then asks what type of account you want: a regular taxable account, a retirement account like an IRA, or both.
Compare brokerages on three things: commission structure (most charge zero per trade now), account minimums (many have none), and the tools and research they offer. Fidelity, Charles Schwab, E*TRADE, Robinhood, and TD Ameritrade are large brokerages with no per-trade commissions. Smaller or specialized brokerages may have different fee structures, so read the fee schedule before you open an account.
Once your account is open, you link a bank account and transfer money into your brokerage account. This usually takes one to three business days. Only then can you place your first trade.
Placing a buy order: market orders and limit orders
When you are ready to buy, you search for the stock by its ticker symbol (a one- to five-letter code like AAPL for Apple or MSFT for Microsoft). You then choose between two main order types: a market order or a limit order.
A market order buys the stock immediately at whatever the current market price is. If you place a market order for Apple at 10 a.m. and the stock is trading at $150, you will buy shares at or very close to $150 per share. Market orders execute almost instantly, but you do not control the exact price.
A limit order lets you set a maximum price you are willing to pay. If you place a limit order to buy Apple at $145 and the stock is currently $150, your order sits in the queue. If the price falls to $145 or below, your order executes. If the price never reaches $145, your order never fills. Limit orders give you price control but no may provide the trade will happen.
Placing a sell order and understanding capital gains
To sell a stock, you find it in your account holdings and place a sell order using the same market or limit order options. A market sell order executes immediately at the current price. A limit sell order waits until the stock reaches a price you set or higher.
When you sell a stock for more than you paid for it, you have a capital gain. The tax you owe on that gain depends on how long you held the stock. If you held it for one year or less, it is taxed as short-term capital gains at your ordinary income tax rate — the same rate as your salary or wages. If you held it for more than one year, it is taxed as long-term capital gains, which are usually lower: 0%, 15%, or 20% depending on your income level.
If you sell a stock for less than you paid, you have a capital loss. You can use capital losses to offset capital gains in the same year, and you can carry unused losses forward to future years.
Taxable accounts versus retirement accounts
A taxable brokerage account has no contribution limits and no restrictions on when you can withdraw money. You pay capital gains tax on any profit when you sell, and you pay tax on any dividends the stock pays. This is the most flexible account type.
A traditional IRA lets you contribute up to $7,000 per year (or $8,000 if you are 50 or older). You do not pay tax on gains or dividends while the money is in the account, but you pay ordinary income tax on withdrawals in retirement. You cannot withdraw before age 59½ without a penalty, except in limited circumstances.
A Roth IRA also has a $7,000 annual contribution limit. You contribute after-tax money, but gains and dividends grow tax-free and you withdraw tax-free in retirement. Roth withdrawals are more flexible than traditional IRA withdrawals, though contribution limits apply based on your income.
Most people use a combination: a taxable account for money they may need before retirement, and a retirement account for long-term savings. The account type does not change how you buy and sell stocks — only the tax treatment of your gains.
What happens after you buy: holding and monitoring
Once you own a stock, it sits in your account. You can check its current price anytime through your brokerage's website or app. Some stocks pay dividends — regular cash payments to shareholders — which your brokerage deposits into your account automatically. You can reinvest dividends to buy more shares, or take them as cash.
You are not required to do anything with a stock once you own it. You can hold it for decades, or sell it tomorrow. There are no holding fees or maintenance costs for owning a stock. The only costs are the commission (usually zero) when you buy or sell, and the taxes you owe on gains when you sell.
Many investors use a brokerage's research tools, news feeds, or stock screeners to track their holdings and research new stocks. Others use external websites like Yahoo Finance or Morningstar. The tools are optional — you can own stocks without using any of them.
Common mistakes to avoid when buying and selling
Placing a market order during market hours (9:30 a.m. to 4 p.m. Eastern Time on weekdays) usually executes within seconds. Placing one outside market hours — before 9:30 a.m., after 4 p.m., or on weekends — goes into the queue and executes when the market opens, possibly at a very different price. If you want to trade outside market hours, use a limit order instead.
Confusing a stock ticker with a company name is easy but costly. Make sure you are buying the right ticker. AAPL is Apple; MSFT is Microsoft. A similar-sounding ticker might be a completely different company.
Overtrading — buying and selling frequently — can trigger short-term capital gains taxes and rack up trading costs. Most individual investors benefit from buying and holding for the long term rather than trading in and out of positions.
Frequently Asked Questions
How much money do I need to start buying stocks?
Most brokerages have no account minimum, so you can open an account with $1. However, some stocks trade at high prices per share, so you may need at least $100 to $500 to buy a single share of a major company. Fractional shares — portions of a single share — are now available at most brokerages, so you can invest smaller amounts.
Can I buy and sell the same stock on the same day?
Yes, but if you do this frequently you may trigger the "pattern day trader" rule. If you make four or more day trades in five business days in a regular taxable account, your brokerage may restrict your account or require you to maintain $25,000 in the account. This rule does not apply to retirement accounts.
What is the difference between a stock and a share?
A share is a single unit of ownership in a company. A stock is the general term for ownership in a company. If a company has issued 1 million shares, owning 100 shares means you own 0.01% of the company. The terms are often used interchangeably.
Do I have to report my stock trades to the IRS?
Yes. Your brokerage sends you a Form 1099-B at tax time listing all your trades and gains or losses. You report this on your tax return. Failing to report trades can result in penalties and interest.
What happens to my stocks if my brokerage goes out of business?
Your stocks are protected by the Securities Investor Protection Corporation (SIPC), which covers up to $500,000 per account at a failed brokerage. This means your shares are returned to you or transferred to another brokerage. SIPC does not protect you against losses from bad investment decisions, only from brokerage failure.